Big Chinese Developers Push Into Hong Kong Market

China Vanke, others bid for land in territory long dominated by rich tycoons

HONG KONG—China’s property developers are aggressively bidding for prime public land in Hong Kong as competition heats up in a sector where Asia’s wealthiest tycoons built their fortunes.

For decades, large conglomerates controlled by Hong Kong’s richest families have ruled the city’s real-estate market, having developed the tall office towers that dot the iconic skyline to the endless rows of residential apartment blocks.

That dominance is now being challenged, as major Chinese property firms that have grown to prominence in recent years seek to gain international status through a foothold in the former British colony. Though a part of China, Hong Kong has its own set of laws and institutions.

In the first half of this year, some 40,869 square meters (439,910 square feet) of public residential land were awarded to mainland Chinese property companies through government tenders, according to Hong Kong’s Lands Department, a sixfold jump from a year earlier.

Although Hong Kong companies still won more land during the six-month period, analysts say the increased tender wins are the result of the most assertive bidding effort by Chinese developers to date. Strong backing from their parent companies helped them outbid large Hong Kong rivals, the analysts say.

“They want to make some iconic developments here,” said Thomas Lam, head of valuations at Knight Frank, a property consultancy.

Between 2005 and 2009, none of the 26 plots of public residential land up for bidding in Hong Kong, among the world’s priciest markets, were won by Chinese companies, according to real-estate consultant Savills. That jumped to 18 winning bids out of 166 sites offered between 2010 and 2016, Savills said.

Those making a push into Hong Kong include China Vanke Co., the nation’s biggest home builder by sales, as well as state-backed conglomerates such as China Overseas Land & Investment and the housing arm of a company originally founded by the People’s Liberation Army.

For China Vanke, its expansion in Hong Kong and overseas follows a presence in China that spans 65 cities and 210 million square meters, with more than 95 developments in the affluent Guangdong province alone.

A move abroad could help Vanke “learn management experience and business models from the developed countries,” the company said in its latest annual report, published in April.

The hope is that the company’s status would meet, and even exceed, the likes of well-known Hong Kong developers such as tycoon Li Ka-shing’s Cheung Kong Group, Sun Hung Kai Properties and Swire Pacific. China Vanke will “continue to increase its property portfolio in Hong Kong through various means” since it remains positive on the market’s fundamentals, a representative said.

Already, Chinese companies have become key players in many Hong Kong business sectors, such as retail, banking, aviation and telecoms, going up against the local conglomerates that had dominated nearly every facet of the city’s economy.

Until recently, however, Chinese firms largely avoided competing in property development, which is among the most lucrative segments of most Hong Kong conglomerates. Property prices have more than tripled since 2003, according to UBS, albeit with some recent weakness.

“It’s good to have more players than a market dominated by four developers. Now that there’s more supply, it’s actually a healthier market,” said Chris Hoong, managing director of midsize developer Far East Consortium. The government has put up more land for bidding to boost supply as housing prices are among the highest in the world.

To be sure, Hong Kong’s largest developers sit on massive land banks, making it less likely they would aggressively bid for public land, analysts say. Yet when they do bid they have been losing out to more aggressive mainland firms.

Also, the presence of Chinese developers in Hong Kong is still small, and despite the rise in land tenders, most mainland Chinese companies have yet to build and sell a residential project in the city.

For now, it’s too early to say how the recent flurry of successful Chinese bids will affect Hong Kong’s property market, since it will take years for new projects to be completed. The success of those sales will depend not just on having land, but also on branding, marketing and creating a product consumers will want to buy.

Chinese developers “really have to learn and catch up to the big Hong Kong developers,” said Henry Mok, director at property consultancy Jones Lang LaSalle.

However, he says their goal isn’t to dominate the Hong Kong market. “They want to use Hong Kong to explore other areas overseas,” he says.